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Rent invoice format for NPOs

in our line of business the question of donated services comes up a lot a client of ours wants to give a donation receipt to an attorney or someone else who is donating pro bono services or maybe it's free office space but is that a tax deductible donation that's the question we're answering today [Music] hi welcome back to the 501c3 university channel foundation group's education platform for nonprofits i'm greg mcrae founder and ceo of foundation group pro bono services we get that question all the time can a donation of services be tax deductible to the donor short answer is probably not unfortunately now i can hear the house of protest already so let me explain how many times have we heard the phrase time is money well i suppose in certain circumstances there's a lot of truth in that but when it comes to pro bono services well time is not money the reality of it is this the irs has some strict guidelines concerning what type of donation can result in a tax deduction for the donor now these include gifts of cash and cash equivalents like securities and stocks and bonds now these are all forms of monetary gifts but there's also in-kind gifts mostly including tangible items like clothing cars even the odd intangible like cryptocurrency now notice what's not included in that list of in-kind gifts time the pushback usually goes something like this attorney jay charges 300 per hour for his time therefore he should get credit for donating six hours of pro bono legal services valued at eighteen hundred dollars well sadly for attorney jay it just doesn't work out that way in-kind gifts are valued at fair market value now this can be done fairly easily for qualifying in-kind items whether that's a sweater or a bag of groceries or maybe even an automobile but that falls apart for donations of time attorney jay may value his time at 300 per hour but the next attorney down the road may set their rate at 100 or even 500 per hour and since pro bono services cannot be readily assigned a fair market value the irs does not allow tax deductibility of such services time may be money but you cannot establish a value for it sufficient enough for tax purposes there are exceptions to this rule however well maybe not exceptions more like an opportunity to at least get credit for something if someone is donating their time as a pro bono vendor then any direct expenses incurred in providing that service may be tax deductible now this includes payments made to a contractor that the donor may have enlisted to help in the service provided it does not include normal salary for any of the donors employees however because that's already a business expense and you cannot double dip we'll wrap up our short conversation today by looking at free rent now this comes up a lot if your charity is given office space rent free isn't that forfeited rent a tax deduction for the landlord no it categorically is not now unfortunately the internet is littered with confusing and conflicting advice on this there's some really really bad articles out there encouraging charities to seek out rent-free donations of space and how it benefits both parties including giving a tax deduction to the owner no no no no no i'm not sure how people get this so wrong the irs routinely denies these tax deductions and they clearly state in pub 526 a contribution of the right to use property is a contribution of less than your entire interest in that property and isn't deductible in case you're wondering if that actually means pro bono rent well it does the very next paragraph in publication 526 uses the example of a business providing free office space in a building that it owns and because the rent-free donation is a partial interest in the property it isn't tax-deductible if a donor wants a tax deduction for donating space it must be the donation of the actual facility the entire thing not simply the use of it as before however any direct expenses incurred by the donor in providing this donation may be deductible i hope this helps clear up some confusion about the topic of pro bono donations now there's always more depth and scenarios we could go into but this discussion covers the most common questions related to this subject that we get as consultants as always if you like this video please click the like button it really does help out our channel a ton subscribe if you haven't already and click the little bell icon to be notified of new content when we post it thanks for watching and we'll see you next time [Music] you